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Cost of compliance continues to soar for small firms
Published:  10 July, 2013

The average small and medium enterprise is paying substantially more than two years ago, despite government promises to reduce the amount of time and money businesses spend on compliance costs.

That is according to new research by the Forum of Private Business, which puts the total cost of compliance at more than £18.2 billion – an 8.5% increase compared to 2011.

The research also showed firms are paying 11% more to external providers of payroll and tax support compared with two years ago, which the employer support organisation said was most likely down to the introduction of Real Time Information (RTI) – a new HMRC payroll process introduced in April, which all firms with employees have to use.

As in 2011 when the Forum did its last cost of compliance study, taxation compliance remained the single biggest outlay for small firms, followed by employment law, with health and safety third.

The Forum’s policy adviser Robert Downes said: “Our research shows little has changed in terms of what’s costing small business the most for compliance costs. The stand-out surprise though has to be the huge increase in spend on external contractors.

“We believe this is largely down to RTI, and firms having to pay a payroll specialist to manage their employees’ PAYE bills, but by contrast businesses are paying out slightly less on internal compliance managed in-house. The logic here seems to be to pay an expert to do a job they can no longer do themselves, for whatever reason that may be.”

Prior to RTI being launched in April, HMRC anticipated the cost to small business at £120 million, while the Forum research puts the figure at more than double that at £311 million.

“Government number crunchers never seem to get their sums correct, so it’s no wonder small firms are getting jumpy about the cost of pension auto-enrolment, which by its very nature is going to be hugely more expensive than RTI to set up, deliver, and maintain,” Downes added.

There was some good news when it came to health and safety, with internal costs falling slightly since 2011, according to the Forum’s data. It said this was also likely to fall further after October’s Common Commencement Date, when sweeping changes to workplace health and safety are implemented.

Downes said: “The changes in October should really see health and safety costs come down as the onus shifts to employees having to take more of a responsibility for their own safety in the workplace, and the end of strict liability for employers will mean firms can’t be held responsible for accidents beyond their control.”